Gentium gains on PIPE; Cubist holders await convertible smoke to clear; Crucell up; Durect higher

By Ronda Fears

Memphis, May 31 - A kick up as May closes was nice, biotech players said Wednesday, but many were expecting a long dry summer, particularly for deal flow in the primary side of the market.

"We think there is more [selling pressure] coming," said a biotech fund manager in Boston.

The Nasdaq Biotechnology Index gained 1.34% on Wednesday after erasing the day before a 2% gain on Friday before the long Memorial Day weekend.

"Obviously, we think biotechs will eventually come back but I don't expect much until July," he said. "For deals, I think it will be tough to get anything off this summer."

A trader said that while the major biotech indexes were higher Wednesday, along with several individual names in the sector, the volume was not impressive.

"I see a lot of folks sitting on the sidelines," the sellsider said. "What we are seeing right now are volatility players. The vol is impressive, no doubt. But other than that there just isn't a lot going on. Some of that could be due to it being the end of month. I don't think so. I think the market doesn't have its legs yet and until there is a firm conviction we will just flop around."

Gentium gains 7% on deal

Italian biotech Gentium SpA has secured definitive agreements for a $22.1 million private placement of American Depositary Shares with a group of U.S. and Italian institutional investors who have agreed to buy 1.94 million ADS at $11.39 each, plus warrants for 388,705 ADS at $14.50 each.

Gentium ADS (Nasdaq: GENT) gained on the news, adding 89 cents, or 7.31%, to settle Wednesday at $13.06.

A trader said that while the deal was at a huge discount to where the stock is trading, it was seen as good news from a standpoint of funding Gentium's business.

Gentium said proceeds will be used for the development of its drug candidate Defibrotide, in studies to prevent veno-occlusive disease and treat multiple myeloma, and for general corporate purposes.

Based in Villa Guardia, Italy, Gentium is focused on developing drugs derived from DNA extracted from natural sources to treat cancer and vascular diseases.

Almost a year ago, Gentium went public with its IPO in the United States. In mid-June 2005, the company priced a downsized IPO of 2.4 million ADS, cut from a planned 2.7 million, at $9 each - the low end of the proposed range of $9 to $11. Gentium used the IPO proceeds to repay debt and for general corporate purposes.

Crucell up on trial launch

Dutch biotech Crucell NV gained modestly Wednesday on news that it has started a large human trial for its influenza vaccine.

Crucell shares (Nasdaq: CRXL) added 16 cents on the day, or 0.7%, to close at $23.01.

"I think we see sideways action until they announce product news or profitability," a sellside trader said. "A potential steep decline in the market doesn't bode well for Crucell. Small players will take their profits and flee to consumer staples, utilities, the mattress, whatever. I'd stay away until the market shows greater signs of stability."

Crucell said the flu vaccine trial, performed in collaboration with a team based in Leicester, U.K., will involve 560 healthy adult individuals. Three types of vaccine will be tested for safety and immunogenicity, all based on the H9N2 virus.

Trials with potentially pandemic subtypes of influenza A such as H9N2 can be used in support of a pandemic core dossier, which forms the basis for rapid approval by the regulatory authority of a vaccine against an actual pandemic threat once it emerges, the company said.

The study will allow Crucell to choose the best vaccine modality to be tested in further clinical studies with pandemic vaccines, including vaccines against H5N1 avian influenza. First results of the study are expected by the end of 2006, the company said.

"The present trial is designed to investigate several options to lower the amounts of antigen per dose by exploring different adjuvants and routes of immunization," said Jaap Goudsmit, the chief scientific officer of Crucell, in a news release. "It will also guide us in determining how to make an effective vaccine against any avian flu strain, including H5N1. Ultimately, what counts is the speed at which the vaccine can be made and how many people can receive it early on."

Cubist shares dive on deal

Back to U.S.-based biotechs, Cubist Pharmaceuticals, Inc. shares saw heavy volume, suggesting great participation by hedge funds in its new convertible bond that was set to price after the market close. Stock players were mostly waiting for the convertible effect to pass, traders said, and looking to buy before the stock resumes an anticipated surge higher.

Cubist shares (Nasdaq: CBST) dropped $2.36 on the day, or 9.07%, to settle at $23.67. Some 5 million shares changed hands, versus the norm of 900,751 shares.

Sellside traders said that players in the story figure the stock is just seeing the typical slump related to the convertible and that it will resume an upward path based on the Food and Drug Administration approval last week to expand the label and usage for its antibiotic Cubicin.

"They have 125 to 135 reps [sales representatives] based in hospitals going to sell Cubicin. They have been talking about acquiring an anti-infective product or company. They will have about $110 million left over if they buy back all the debt."

Cubist is pitching $275 million of convertible subordinated bonds talked to yield 2.25% to 2.75% with an initial conversion premium of 25% to 30%, with proceeds earmarked to repay existing debt, for research and development and general for corporate purposes.

Cubist convertible seen cheap

In another sign that the new Cubist convertible was seeing heavy play, and liked, was a 101 bid with a 103 offer in the gray market before it priced late Wednesday.

"I really like the company, I really like the product, and it models cheap," a sellside source in the convertible market told Prospect News.

"It'll probably come in on the rich side of price talk. But if they change it to the rich end, it'll still be fair to slightly cheap."

Cubicin is 98% of the company's sales as it is its only product. Most equity analysts seem to have $30 and above price targets on the stock, the convertible sellsider said.

"They're almost cash equal to debt," he said. "I just think that the bonds will be fine without it [a pipeline], and it looks like they've got a complementary rather than a cannibalistic drug going into phase 3. I don't think the market's giving it any credit either."

Durect gains with sector

Many biotechs were just drifting higher with the sector, traders said, like Durect Corp., although there was news on debt reduction by the company last week that caught some attention.

Durect shares (Nasdaq: DRRX) added 7 cents, or 1.5%, to end Wednesday at $4.70.

On Friday, the company announced it had entered into a privately negotiated transaction with a holder of its 6.25% convertible due 2008 in which the holder converted $20 million of notes into 6,349,206 shares of stock. The company made a cash make-whole coupon payment to the holder of $2.86 million.

On that conversion, the company said there is now $37.3 million of the notes outstanding.

"I don't know what this means except the holder must think he'll earn more in the stock than in the 6.25% bond, and that makes the stock look better," said an equity trader. "Less debt is good but the company had to pay up for that. Basically, I'd say it was a non-event."

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